A very divided FERC yesterday dealt a major blow to thecontroversial Independence Pipeline and associated SupplyLinkexpansion projects, requiring each to submit long-term firmcontracts for about 70% of capacity before they can beginconstruction, as well as to satisfy more than 100 environmentalconditions.

The Commission was less critical of the hotly contestedMarketLink expansion project, but still it said the projectcouldn’t start digging until Independence and SupplyLink compliedwith the terms. If neither Independence nor SupplyLink meet therequirements, a FERC staff member said the MarketLink expansioncould go forward on its own, but it would have to first amend itsapplication.

By a vote of 3-2, with Commissioners Vicky Bailey and CurtHebert Jr. dissenting, the Commission majority approved an interimorder, which requires sponsor ANR Pipeline to submit “executed,”long-term firm contracts for 71% of SupplyLink’s capacity;Independence to file long-term contracts for 68% of its capacity;and MarketLink to submit contracts for about 100% of capacity —before certificates will be awarded. Project sponsors told FERCthey had executed contracts for these capacity amounts, and now theCommission wants to see proof, a staff member said. An estimated35% of the SupplyLink-Independence capacity will have to be undercontracts to non-affiliates, according to FERC.

The interim order, which a staff member likened to a preliminarydetermination, also calls for sponsors of the three projects tomeet numerous environmental conditions, such as establishing anombudsman to address landowner complaints, setting up a $3 millionrestoration bond, and obtaining access to lands not previouslysurveyed before starting construction.

The decision “is not a caving into people who saynot-in-my-backyard,” said Chairman James Hoecker. But to manythat’s how it seemed. The order was a big win for landowners inOhio, Pennsylvania and New Jersey — through which the projectswould travel — and a major blow to the projects and theirsponsors. It no doubt assuaged the concerns of New Jersey Gov.Christine Todd Whitman, who had threatened to file a lawsuit ifMarketLink was approved.

“This case is about contracts under our old policy,” Hoeckernoted. The sponsors of Independence ran into problems on this scorewhen they created an affiliate, DirectLink, in September 1998 tokeep their project from being dismissed. FERC yesterday rejectedthe DirectLink contract, which was for 55% of the project capacity.

Bailey said she was hard-pressed to understand why theCommission majority ignored the DirectLink contract. Under theinterim order, “69% [of the capacity] will have to be undercontract before dirt can be turned” on Independence and SupplyLink.She contends the decision requires theprojects to demonstrate an”onerous” and “unprecedented” need. As a result, she said thesponsors will be forced to either delay Independence and SupplyLinkindefinitely, or scale them back considerably.

This is “a very difficult case,” countered Hoecker, and as aresult it “necessitates some extraordinary measures” – some ofwhich are without precedent.

“This order is more prescriptive and burdensome” than the newpolicy statement on pipeline construction, Hebert argued. TheCommission has “created a political monster and [a] legalnightmare,” he said, adding that it was the most “burdensome” orderFERC had ever issued. Hebert further noted the decision parted withFERC’s prior policy, which was not to look behind contracts todetermine project need.

With respect to Independence, Commissioner Linda Breathitt saidthere wasn’t “enough market support for me to hang my hat on.”Although she didn’t oppose the use of affiliate contracts tojustify pipeline projects, she noted she couldn’t vote tocertificate Independence based on the DirectLink contract alone.

Breathitt hoped the case signaled a new awareness by theCommission to landowner issues. She said she anticipated the orderwould “satisfy very few,” even though it represented a “fairbalance” of all the issues.

The proposed SupplyLink project is an expansion of ANR’sexisting facilities between Joliet, IL, and Defiance, OH. It wouldsupply Canadian gas to the proposed Independence Pipeline, a400-mile greenfield pipeline that would extend from Defiance to theLeidy hub in Pennsylvania. From Leidy, MarketLink – which is solelysponsored by Transcontinental Gas Pipe Line – would transport gasto the East Coast. MarketLink would be an expansion of Transco’sexisting facilities in Pennsylvania and New Jersey.

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